HAMILTON, Bermuda, Jan 29, 2002 — Foster Wheeler reported a fourth quarter net loss of $273.3 million, putting the company on the line with its revolving credit facility.
The results, announced by the company Wednesday, included an after-tax charge and reserve of $257.3 million and a $22.9 million net loss on the previously announced sale of the company’s power plant in Mt. Carmel, Pa. This resulted in a loss per share of $6.68.
Foster Wheeler said it has received temporary waivers on the terms of its revolving credit facility and its lease so that it is not in violation of those terms.
The company said its board of directors has approved a comprehensive plan to make significant improvements to the company’s operating performance.
Fourth-Quarter Charge and Reserve
In fourth quarter 2001, the company recognized an after-tax charge and reserve of $257.3 million. The future net cash effect of these items is expected to be slightly positive in the aggregate.
The restructuring and contract costs of $101.5 million consisted of:
— an after-tax charge of $74.5 million (pretax, $114.6 million) for the write-off of seven project overruns ($34.7 million), disputed claims ($24.1 million), and overdue receivables ($15.7 million); and,
— a restructuring charge of $27 million (pretax, $41.6 million), which included workforce reductions in the United States, subsidiary closures, and the cancellation of a company-owned life insurance program.
The company also recorded a book reserve of $155.8 million for domestic deferred tax assets under Financial Accounting Standards Board (FASB) Statement No. 109 “Accounting For Income Taxes”.
The company has obtained a waiver under its revolving credit facility through April 15, 2002, subject to the satisfaction of certain ongoing conditions, including an extension or refinancing of its lease financing and replacement of its receivables sale arrangement. Having secured such waiver, it is not currently in breach of the financial covenants under its revolving credit facility. The company has also received a waiver of the financial covenants under its lease financing through its maturity on February 28, 2002. Management is in discussions with its lenders regarding a long-term extension of the company’s credit facility and a replacement for its lease financing and receivables sale arrangement.
Fourth-Quarter and Year-End 2001 Results
With the after-tax charge and reserve of $257.3 million, as well as the $22.9 million net loss on the previously announced sale of the company’s power plant in Mt. Carmel, PA, the net loss in the fourth quarter 2001 was $273.3 million, or $6.68 per share diluted (ps-d) on revenues of $1,039.2 million. In the year-ago fourth quarter, net earnings were $12.3 million or $0.30 ps-d on revenues of $1,088.8 million.
For the full year ended December 28, 2001, the company had a net loss of $263.1 million or $6.44 ps-d, compared to net earnings of $39.5 million or $.97 ps-d for the year ended December 29, 2000. Revenues for 2001 were $3.4 billion versus $4.0 billion in 2000.
New orders booked for the quarter ended December 28, 2001 amounted to $1.1 billion compared to $1.0 billion in 2000. New orders booked for the full year were $4.1 billion compared to $4.5 billion in 2000. The backlog of orders totaled $6.0 billion versus $6.1 billion at the end of December 2000.
At the close of the fourth quarter 2001, the company had cash and cash equivalents of $224.0 million compared to $167.6 million in third quarter 2001, a 34 percent increase. Also, net debt decreased 13 percent from the end of the third quarter to $813.5 million from $932.8 million, although it increased from $776.3 million at year-end 2000.
Energy Equipment Group Results
During the fourth quarter 2001, the Energy Equipment Group’s new orders decreased to $184.8 million from $377.2 million for the fourth quarter of 2000. Backlog at the end of the quarter and year was $1.5 billion compared to $1.7 billion in 2000.
For the year, bookings were $1.3 billion from $1.5 billion in 2000. Revenues for 2001 grew 16 percent to $1.3 billion from $1.1 billion in the same period of last year.
Engineering and Construction Group Results
New orders in the Engineering and Construction (E&C) Group during the fourth quarter were $932.1 million compared to $693.5 million in the fourth quarter of 2000, making the Group’s backlog $4.6 billion versus $4.5 billion at the end of 2000. The Group had fourth-quarter revenues of $655.5 million, down from $778.1 million in the fourth quarter of 2000.
For the year, E&C bookings decreased 9.0 percent to $2.8 billion from $3.1 billion in 2000. Revenues were $2.2 billion, compared to $3.0 billion in the same period of last year.
New Business Plan
The company’s new business plan resulted from a rigorous management review of project backlog, critical business processes at the project level, and all spending categories. In addition to identifying significant performance improvement opportunities, the plan includes an after-tax charge of $101.5 million in the fourth quarter to cover restructuring costs, a reduction of the current value of claims, a reserve for overdue receivables, and cost overruns on seven specific projects. The company has also recorded a reserve of $155.8 million for domestic deferred tax assets.
“We have launched a project performance intervention to rapidly effect necessary improvements” said Raymond J. Milchovich, chairman, president and CEO. “I have used this approach and methodology on a number of occasions over the last five years with consistent, breakthrough-level results in the business units where the intervention was applied. I believe that the execution of this improvement plan will lead to a fundamental culture change at Foster Wheeler and we are already seeing encouraging results from these efforts.”
“We are creating a leaner, more flexible, faster moving, more fiscally responsible company, capable of exceeding our customers’ expectations and building value for all of our stakeholders,” he emphasized.
Phase One: Comprehensive Performance Improvement Plan
— Management has established cash as the key factor in the decision-making process, and is now intensely focused on all aspects of cash management. At the end of 2001, the company had cash and cash equivalents of $224.0 million.
— Management has conducted a thorough review of the quality and quantity of projects in the company’s current backlog, including customer commitment, profit, schedule and risk. As a result, management said it is confident that the existing backlog supports the 2002 financial plan.
— Management has performed a detailed analysis of historical project performance to understand the root causes of execution variability.
— All remaining areas of cost and spending are being reviewed with a zero base budget approach. On January 15, 2002, corporate center overhead was reduced by 25 percent. Worldwide overhead is currently being evaluated, and management expects to reduce this by 15 percent by the middle of 2003.
— A disciplined process has been established for capital spending approvals which has already resulted in significant savings. The 2002 capital budget has been reduced by 68 percent from the average of 1998 to 2001.
Phase Two: Building Competitive Strength
Once management is satisfied with the progress being made in Phase One, it will institute a careful strategic-portfolio review to validate and refine its current business mix. Foster Wheeler does business in several different areas, and the review is designed to ensure that each business has the resources, structure and strategic focus to realize its true business potential.